Band-Aid solution
LONDON - Debt experts, charity groups and investors welcomed news on Wednesday that the world’s poorest countries will get new IMF funds and COVID-19 debt relief, but they also cautioned that for some it would still only be a band-aid solution.
A new $650 billion allocation of the IMF’s quasi currency known as Special Drawing Rights (SDRs) will provide over $20b of funding, while an extended repayment holiday on loans from rich G20 nations will temporarily save another $7b.
The $20b share of the SDR increase alone is more than all the emergency money the IMF provided in Africa last year and in relative terms, those under the most serious stress will receive the biggest benefit.
Zambia’s share of the handout — SDRs are allocated roughly according to the size of economies — will double its international reserves.
It will lift those of Argentina, Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka by at least 10 per cent.
More help might be forthcoming too. Talk has already begun about wealthier countries donating or recycling some of their new SDR either directly or into emergency IMF facilities where they could be put to good use.
That would add significant extra support but some feel that even that might not be enough for those in the deepest funk.
The European Network on Debt and Development (Eurodad), comprising 50 non-governmental organisations, estimates the average debt-to-GDP ratio for nearly 70 countries in the G20’s Debt Service Suspension Initiative (DSSI) will rise above 60 per cent this year from 52 per cent prepandemic and 46 per cent back in 2015.
In sub-Saharan Africa, interest payments suck up close to 50 per cent of government revenues for Ghana and around 30 per cent for Nigeria and Angola, S&P Global calculates.
Zambia, Mozambique, Republic of Congo and Angola have all seen their debt burdens soar above 100 per cent of GDP, while Morgan Stanley has flagged concerns about Cameroon, Kenya, Costa Rica, El Salvador, Tunisia, Sri Lanka, Laos and the Maldives.
“This SDR issuance will help the countries that were not in terrible shape coming into this crisis muddle through,” said S&P sovereign analyst Ravi Bhatia.